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lifting profit margins

Adidas shares have run up by nearly 40% Nike Air VaporMax Femme in the past 12 months, to 180 euros ($205.21), stretching the sportswear giant’s jump since late 2014 to a threefold rise. The latest gain was propelled in part by sales of the company’s Superstar tennis shoe, a white, shell-toed classic that ranked as the Nike Air Max Zero Femme best-selling sneaker last year in the U.S. market, knocking Nike out of the spot it had held for more than a decade.

But the retro Adidas white-shoe craze has peaked, at least according to retailer Foot Locker FL, +1.09%  , in widely reported comments a few weeks ago. Given Adidas’ ADS, +0.98% advance, it must be time for investors Adidas Superstar Homme to throw in the three-stripe towel, right?

Not so fast, say portfolio managers for European equities at Hermes Investment Management, who have owned Adidas since 2009 and count it as their largest “active weight” relative to their benchmark. Adidas Nike Air Max 90 Femme Noir et Rose shares still have significant upside, they argue, particularly if the company can make good on its goal of achieving the lofty profit margins of rival Nike NKE, -0.36% . “If they were to do that with their existing structure, there’s no reason why the shares couldn’t Nike Air Max 90 Damen Blau more than double,” says Chi Chan, the London-based lead portfolio manager for Hermes’ euro-zone strategy.

Matching Nike’s U.S. profit margins, and scoring a twofold advance in the share price, could happen within two years, according to Chan. Adidas had a net profit margin of 5.5% in the past 12 months, compared with Nike’s Nike Air Huarache Femme 12.1%, according to FactSet. Chan says he prefers to look at operating profit margin, with Adidas at 7.7% in the past fiscal year, behind Nike’s 13.8%. That owes, in large part, to the German company’s far smaller U.S. market share; it is 11%, against Nike Roshe Run Femme nearly 50% for Nike.

While doubling the stock price won’t be easy, few analysts and investors foresaw Adidas’ huge surge in recent years, Chan notes. If the stock were to double and maintain the current price/earnings ratio, the company would have to earn €12.40 per Adidas Superstar Femme Noir share in 2019, some 40% above the consensus forecast, he says. “This would seem a pretty tough ask, but boosting the U.S. profit margin would go some way toward achieving that,” Chan says.

One key to lifting profit margins is an ongoing effort to trim the fat. Chan praises CEO Kasper Rorsted’s focus on cost cuts and Adidas Superstar Femme other efficiencies. Rorsted, who previously led German adhesives maker Henkel HEN3, +0.50% , has a reputation as a turnaround specialist.A native of Denmark, Rorsted was named Adidas’ new chief in January 2016, and took charge in October. Shareholders cheered Nike Air Max 90 Femme Noir him from the get-go, with fund managers at Germany’s Union Investment saying they hoped it meant “an end to the long dry spell” in Adidas’ profitability.

“His background is in adhesives—a pretty different world—but he knows how organizations run,” Chan says. “They very much want to drive out inefficiencies in the whole value chain.”The attempt at streamlining included a May announcement that Adidas is selling off TaylorMade and other golf-equipment brands for $425 million as it focuses on shoes and clothing, and its two main brands—its na

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